Is the U.S. Military Presence in the Middle East a Subsidy for Big Oil?

Should the cost of maintaining a military presence in the Middle East be viewed as a subsidy to oil companies? This idea has been repeated often enough to become unchallenged conventional wisdom codified by the “NO WAR FOR OIL” bumper sticker.

It has been argued that the Gulf and Iraq wars were not necessary to keep the global price of oil stable and neither is our continued military presence in the Middle East. There is no way to rerun the experiment to see what the world would look like had we not had the Gulf and Iraq wars. My guess is that the Gulf war was probably a smart move, the Iraq war, maybe not so smart.

As for the continued military presence, it is money well spent if it is helping to maintain peace in the Middle East. As Steven Pinker effectively argues, one key to reduced levels of violence is an effective police force:

As a young teenager in proudly peaceable Canada during the romantic 1960′s, I was a true believer in Bakunin’s anarchism. I laughed off my parents’ argument that if the government ever laid down its arms all hell would break loose. Our competing predictions were put to the test at 8:00 am on October [7], 1969, when the Montreal police went on strike. By 11:20 A.M. the first bank was robbed. By noon most downtown stores had closed because of looting. Within a few more hours, taxi drivers burned down the garage of a limousine service that had competed with them for airport customers, a rooftop sniper killed a provincial police officer, rioters broke into several hotels and restaurants, and a doctor slew a burglar in his suburban home. By the end of the day, six banks had been robbed, a hundred shops had been looted, twelve fires had been set, forty carloads of storefront glass had been broken, and three million dollars in property damage had been inflicted, before city authorities had to call in the army and, of course, the Mounties to restore order.

In my neck of the woods the “No War for Oil” bumper stickers are typically found on cars burning biodiesel because most biodiesel stations here give them away to promote their product. So, are these people really more concerned about world peace than the rest of us, or are they just victims of marketing? I cede the point that if it were not for oil (and Israel), our elected officials might do nothing to prevent a Middle East version of Darfur, but would that be a good thing?

Those who drive cars that use less liquid fuel have the right idea (TDI diesels, hybrids, and electric cars). Those who drive vehicles that simply replace fossil oil with food oil are IMHO, victims of marketing. Last week I was driving my Leaf in rush hour traffic and on two occasions I put my windows up so I wouldn’t have to breath the soot spewing out of two different vehicles burning biodiesel. Their smell will usually alert you to their presence.

The owners of these bumper stickers seem to think that if we stop importing oil:

Our economy will no longer be susceptible to oil price fluctuations.

We will no longer strive to maintain peace in the Middle East.

Our military budget will shrink.

But is any of that likely to happen if we stopped importing oil? And not to defend big oil, but why has the oil industry been singled out as the sole beneficiary of peace in the Middle East? The whole goal of maintaining that peace is to keep the “global” price of oil (the same price that we have to pay for it) lower, which is not the goal of any oil company I’m aware of.

Domestically Produced Fuel

There are two main reasons commonly cited for why we would like to have all liquid fuel come from domestic sources:

To keep the supply cost stable

To reduce the trade imbalance

When we talk about supply we really mean supply relative to demand (shortages cause prices to rise and vice versa). In other words, what we are actually seeking is to stabilize cost. But because oil is fungible, domestic production won’t lower the price of oil significantly because those who own it are free to charge as much as the global market will bear:

The secret to making a profit in refining these days is for refiners to source crude oil domestically and then sell the refined products to US consumers at prices based on imported oil.

So scratch item one. Domestically produced oil does not necessarily significantly lower the price of gasoline for consumers.

Item two (reduction of the trade imbalance) is a moot point because we can’t reduce oil imports quite simply because we can’t produce significantly more domestic oil in perpetuity or displace much with agrofuels. The only way to accomplish a long-term reduction in imports is to reduce liquid fuel consumption, period, which has nothing to do with the military budget. And to do that you would have to convince your average American to start driving cars that get mileage similar to a Prius, or diesel Golf instead of the best selling vehicle, the Ford F150 pickup.

After seven years of trying, the idea that we can simply replace a significant (or even a measurable) amount of imported oil with agrofuels at prices equal to or below the price of oil has proven to be a pipe dream. A few years ago Robert Rapier tried to quantify corn ethanol’s impact on imports but couldn’t find an impact, suggesting it is quite small to insignificant.

Midwest Drought

Food price, wildlife habitat, and water quality issues aside, the Midwest drought is demonstrating another reason why we should not become too dependent on agrofuels — price instability. Many corn ethanol refineries have been operating in the red this year because the price of corn is so high. So far, they can’t charge oil companies enough to cover their costs because each corn ethanol company is competing with the next one and their customers will naturally go for the one with the lowest price. They would have to collude to fix their prices (as the ethanol lobby always claims grocery chains do when the price of food spikes), which is illegal. Eventually, enough refineries will go out of business, and use up enough reserves, to allow the price of ethanol to climb (because its use is mandated, the price is not locked to global oil prices). And we all know who will get stuck with that bill.

We have not bought oil from Iran for decades. That’s mostly a symbolic move after the hostage crisis. They still sell their oil to other customers. We could stop buying oil from the Persian Gulf (16% of imports) or even from OPEC altogether (40% of imports). We don’t do that because it would cost more to buy all of our oil from non-OPEC sources, not to mention that it would be largely meaningless to do so since oil is fungible (we buy oil at a premium from Canada, they might import for less cost for their own use from OPEC, pocketing the difference).

The Benefit of Protecting Global Markets

Even if we assume for the sake of argument that the military budget actually is a subsidy to oil, we would have to assume that the subsidy applies to the global oil market and not just our own. We have taken on the role of global sheriff because world peace is good for business. The cargo containers flow from ships to rail and vice verse day and night at our sea ports. Allow the flow of energy to our trading partners to be reduced (a global price hike) and you will cut that flow of cargo containers.

Japan is experiencing some serious economic trouble at the moment largely because they are importing so much fossil fuel energy thanks to having their nuclear off line. We certainly wouldn’t want their supply of energy tripped up (through a global price hike) because, ironically, the technology developed in the Prius and Leaf hold the keys to our own liquid fuel independence.

The computers we type on would be of much lower quality and cost a great deal more were it not for this global market. Cars, tools, bikes, monitors, computers, and much of the food we eat come from trading partners who are also dependent on affordable supplies of energy.

Because we know that not all subsidies are boondoggles, we would have to determine if this hypothetical military budget subsidy pays off. To find that out you would simply divide the part of the budget allocated to protect global oil supplies by the amount of energy contained in that supply. Compare that number to just about any other subsidy you can think of (agrofuels, wind, solar, nuclear) and you would find that it pays off royally. Feel free to run that number for us but the cost per unit of energy won’t have enough impact to give oil any advantage over the likes of corn ethanol.

Another test would be to compare military expenditures to the cost of converting a percentage of our vast coal and natural gas resources into a liquid fuel as Nazi Germany did and as is done in South Africa today. A properly regulated free market doesn’t leave money laying around on tables. If it were cheaper to do that than import, we would be doing it, and as with tar sand oil, environmental ramifications would be brushed aside. I live a short distance from Gas Works Park, which is the remains of a facility that actually converted coal into a gas to be used for heat and lighting in Seattle. The arrival of electricity and natural gas made it economically non-viable.

Militarists who can’t sleep at night worrying about getting enough fuel to fight the next big one can relax. If we should ever find ourselves in a war big enough and long-lived enough that we would need to tap that coal and gas to fight it, we would do so. The idea that we could fight a war with corn ethanol and soy biodiesel, (which account for about 99.9 percent of our liquid biofuels) is ludicrous, which is why the military has been funding research for alternatives.

In summary:

We can only significantly reduce the oil trade imbalance by using less liquid fuel. Corn ethanol and its poor cousin, soy biodiesel, are incapable of having a significant impact on our oil imports. The increased domestic oil production that we are presently experiencing is a temporary blip.

To claim that the price of peace in the Middle East (benefiting every industry dependent on oil by keeping global costs down) is a subsidy to the oil industry (where the majority of the companies might actually have bigger profit margins without peace in the Middle East) is nonsensical.

Presently, the only viable alternative to the Ice is the electric drive-train. Powering vehicles with electricity delivers us from liquid fuel dependence, whether it be bio-fuels or oil to diesel/gas etc.

This depends on which electric drive train. A micro-hybrid or mini-hybrid (like the Prius) uses a small battery to save large amounts of fuel per lifetime. A plug-in or BEV uses a large battery to save small amounts of fuel per lifetime. They are useful for delivery trucks, a short travel much repeated trip pattern, but not for a twice-a-day trip pattern. A trolley or other electric train does not use batteries except to even out the power flows of the system.

The problem is that the amount of resources capable of being used for batteries is, at present, very much smaller than the amount available for fossil fuels. This will change in the future, but at present, the smaller batteries win economically.

It is a subsidy, but the reason for it is not to benefit oil companies. The reason for it is to ensure stable oil supplies for consumers. So to the extent that this is a subsidy, it is one in which the target recipient is the consumer of oil.

The number of lives lost with the Taliban still in power would dwarf by an order of magnitude our losses (fingers crossed for little girl just shot in head)

Peace in the Middle East is a good thing.

The price that you and everyone else in the world would pay for everything, not just oil, should the global market lose that supply thanks to warfare, would make the portion of our taxes delegated to maintaining peace in the Middle East pale in comparison.

Just saying …

You would prefer to pay more for oil, have Hussein and the Taliban still in power …

Doesn’t sound very rational to me. And what about the rest of the world that would have to pay more as well?

Everything you touch goes up in price with the price of oil, not just your oil. Our military budget is a bargain in comparison. The soldiers in Afghanistan are trying to prevent another Twin Towers situation. There is very little oil in Afghanistan.

Your assertion that the owners of oil companies receive no monetary benefit from government subsidies is ignorant on its face. Any consumer whether private or business cannot afford to rely on an unreliable source of energy. The oil companies are only able to maintain their current markets due to the stability provided by the military subsidy. Without it all consumers would flee oil as an unreliable source of energy and the oil companies would go bust.

“Should the cost of maintaining a military presence in the Middle East be viewed as a subsidy to oil companies? This idea has been repeated often enough to become unchallenged conventional wisdom codified by the “NO WAR FOR OIL” bumper sticker.”

I disagree with this 100% I doubt those that sport such decals would refer simply to the monetary cost of war as their motivation for wanting to consume less oil/liquid fuels.

Expressing war as simply a subsidy in economic terms is a little odd, such as purely looking at the Defense budget as a starting point. Hundreds of thousands of people die and the GDP of certain middle eastern nations shrinks, they endure brain drains and youth exodus from their countries, this effect expressed economically over decades is also something that should be considered, and would likely tip some scales.

“My guess is that the Gulf war was probably a smart move, the Iraq war, maybe not so smart.”

This I also have issue with this as a quote comes to mind from the Iraq Bureau chief of IraqiOilReport.com:

“What people will usually say is that the low-hanging fruit is gone, except for in Iraq. Iraq is the last place where there’s a country with massive untapped and even undiscovered oil and gas reserves. Iraq is a place for the oil sector right now, and everything else kind of pales in comparison.”

And the assertion of the Cambridge Research Group in the Lloyds Risk Assesment 360 on Sustainable Energy Security; Iraq is likely to see its production grow to levels of 12mbpd by 2016. Hype? possibly but…

It’s my opinion that Iraq has been placed in a position, by the powers that be and obviously against the will of its previous dictatorship, to become the next Saudi Arabia, a significant stabilizing force in the global market.

The efforts our nation put forward into securing a future where Iraqi oil easily flows to market was indeed sickeningly “smart” (through the Strait of Hormuz, which will require heavy policing: not so smart.)

And hundreds of thousands of Iraqis died for this to become reality, many thousands of US Servicemembers also died, serving our country. A great question usually is do they know why they served ? Usually the answer is to defend our freedom, yes but how ?

Technically the freedoms they refer to are likely those enshrined in the constitution (under more attack from successive US admins. than from Al Queda), but in reality they are certainly fighting for our global economic freedoms and a “safe” global society, guaranteeing access to cheap energy.

So the “NO WAR FOR OIL” meme is not based on money or economics, but an absolute repulsion at the idea that we have to strong arm the world, as you said, like a Sheriff, to behave and keep the oil flowing. Flowing towards nations with majority white post industrialist populations and away from nations of brown skinned third worlders.

Nieve? likely, laudable? absolutely.

If we have to do it with one resource, what follows and where does it end ?

I disagree with this 100% I doubt those that sport such decals would refer simply to the monetary cost of war as their motivation for wanting to consume less oil/liquid fuels.

I don’t care much for punditry and I admit, there are parts of this article that may walk that line. My intent was not to defend any given war. I am talking mostly about the continued military presence in the area along with other attempts to keep the peace in that region.

You make a good point in that the “military budget is a subsidy for big oil” argument, although closely related, is not the same argument that we should not go to war to protect global energy supplies. The stickers in my neck of the woods have usually been provided for free as promotional material from biodiesel distributors who make fuel out of food …so go figure.

Law enforcement is a good analogy for the military when used to keep the peace (as in UN peace keeping forces). There are those who argue that police forces are not necessary, as Pinker once did. Consider reading his latest book to get a feel for how much less violent humanity has become over the last century, in large part because of legitimate police forces. That’s hard to believe, I know, considering the two world wars, but until you read about the horror that is human history …

You make a critical mistake in your argument. You assume that if the U.S. taxpayer wasn’t subsidizing peace in the Middle East through the use of American and NATO forces that there wouldn’t be peace in the Middle East.

Do you really believe that if every last form of western military personnel was magically gone tomorrow, that somehow the oil industry would say to themselves, “Okay, well now there is no Army to protect us, let’s pack up and abandon our hundreds of billions of dollars in potential oil revenue?”

If our military presence was reduced or removed completely, the oil companies that are profiting from Middle East oil supplies would be forced to maintain security in those regions. Either through the use of private security, or preferably, through diplomacy and profit sharing with the citizens of those countries.

Right now, we essentially have the U.S. taxpayer paying to maintain security in an area where the primary beneficiary is a small elite group. If the price of oil increases to the point where western citizens cannot afford to use it as a source of fuel, we will move to renewables and other forms of energy. People need to stop buying into the myth that if oil hits $200 or $300 a barrel or more that somehow western civilization will collapse. It’s really a ridiculous idea. Yes, the western standard of living will have to move closer to the standard that the rest of the world has been accustomed to for 50+ years now, but that is inevitable anyways. Inequalities breed resentment, and long-term resentment breeds violence.

The climate of the current world economy cannot be maintained indefinitely. The sooner this is recognized by the majority of the civilized world the better chance we have of avoiding catastrophic economic failure and the subsequent global violence that is assured when the worlds rich become accustomed to using warfare as a means of maintaining an unreasonable level of wealth.

It’s called global dominance. If USA didn’t do it somebody else would. The USA created a lot of messes getting to he top. If someone else had to be globocop they would have. They probably would have just created their messes and wars indifferent places on heir way to poweThe USA gets what it wants because of its military. Since Carter it’s been wanting stable oil for its citizens to use.

The Entire Military is an overhead cost–essentially and insurance policy– that is borne by the taxpayers. Any purpose to which they are put could be said to be getting subsidized. The real question for any subsidy is “what is the return on investment?” One of the roles the U.S. government has calculated is in the overall best interest of the taxpayer is securing the global lanes of commerce and trying to prevent interdiction of critical global commodities due to war. Oil is certainly one of those commodities, but so is just about everything on a Walmart store shelf or in an Apple Store. The Persian Gulf represents 16% of U.S. oil imports as Russ mentioned, which is only 4.5% of U.S. energy. We buy oil from 80 different countries, and could buy that 4.5% of our energy from Canada or Mexico or Nigeria if we wanted to boycott Saudi Arabia instead of purse the best oil at the cheapest price. There are some geopolitical realities that also need to be considered. Japan is a critical ally of the U.S. in a key region of the world and they are absolutely dependent upon Persian Gulf petroleum, particularly now that they are importing huge quantities of oil and LNG to replace the energy lost by shutting down almost all of their nuclear plants. Saudi Arabia and most other ME nations have essentially forgone development or purchase of nuclear weapons because the U.S. has pledged to protect them under our military umbrella (the strength of that commitment was what was really being tested when Saddam invaded Kuwait and prompted the U.S. to deploy half a million troops on the Saudi/Iraq border in Desert Shield and then push back the Iraqi threat in Desert Storm). Pirates already operate in the Persian Gulf and other key maritime chokepoints like the Strait of Magellan, even with the current level of U.S. and international military policing. It is dangerously naive to think of the $90B we spend a year patrolling the Persian Gulf as an oil subsidy. Global stability and global food prices are tightly bound to the price of petroleum. The U.S. military is a subsidy of the global economy, and one that pays returns in lowering costs on $9T in seaborne trade of which $480B is U.S. imports and exports.

For the first time in history, the dominate military power in the world does not dominate other countries with force but uses its dominance to promote world peace. The US is not just a little bit dominate, every other country is weak in comparison. Oil had nothing to do with it either but how did we get here.

“speak softly and carry a big stick ”

Teddy Roosevelt demonstrated our new blue-water capabilities by sending the Great White Fleet to circumnavigate the globe. The Great White Fleet was powered with coal. Roosevelt negotiated an end to the Russo-Japanese War, for which he won the Nobel Peace Prize.

The concept of freedom of passage is an old concept.

After WWII, the problem was not oil but Stalin. Evil dictators in Germany and Japan were replaced by Stalin. While some in the Pentagon suggested that the navy was a relic of the past because Stalin had lots of tanks but we had nuke weapons to stop him. Stalin changed the world by employing asymmetric warfare, the soviet submarine fleet based on Nazi designs, nuclear weapons.

The red fleet had missile submarines in the early 1960s and were a treat until the end of the Cold War in 1991. So how do you fight a cold war? For thirty years, every USSR missile submarines had a US fast attack sub trailing supported by aircraft from carriers. What did Soviet leadership know about our missile boats? They did not know where they were. If Russian leadership is paranoid, there is a good reason.

The collapse of the evil empire left the US Navy and allied navies with overwhelming naval superiority. This did not rid the world of evil dictators. Russia, China, North Korea, Iran, and Iraq bullied their neighbors with press releases. Iraq not so much anymore.

The first lesson of history is that every country has a military. Switzerland did not get invaded in WWII because because it would be more trouble than it was worth. Today you do not need a strong military if you are allied with the US. South Korea and do not need a large military because they allies with the US. I would not want China or North Korea for neighbors. Worse I would not want to live in China or North Korea because I would be more afraid of my own military.

The second lesson is that it has nothing to do with oil. It is prudent for a maritime country to have an effective navy. It is better to have one and not need it than to need one and not have it. While some of the wing nuts think it is wasted money, the US military is made up of civilian short times. We serve out county for a few years and then bring those skills and experience back home. While out military is a huge visual presence for keeping peace in the world, it just a deterrent to those who do not want to live in peace.

This article is not meant to defend oil companies, oil subsidies, or war. It simply presents rational arguments against the commonly accepted idea that our military presence in the Middle East is a subsidy to oil companies. As RR pointed out in a comment, it can be viewed as a subsidy to users of oil. Holding hands, those seven billion users would wrap around the planet dozens of times.

Your assertion that the owners of oil companies receive no monetary benefit from government subsidies is ignorant on its face.

Strawman arguments don’t work very well on internet comment fields. Any reader is free to search my article for the words ” oil companies receive no monetary benefit from government subsidies.” Rightly or wrongly, they receive a lot of subsidies. I would not call money spent preventing sudden disruptions in supply (as a result of violent conflict) a subsidy if it is preventing global price spikes, which tend to create corresponding profit spikes for oil companies.

Any consumer whether private or business cannot afford to rely on an unreliable source of energy.

Reliability is a matter of degree, as the Midwest drought attests. There are many good arguments as to why we should seek to replace oil with something better. Personally, I think we should be striving harder to electrify transport, which is why I own an electric bike and a Leaf. But not many people are going to ride electric bikes and the Leaf is not priced low enough for mass appeal, not to mention, liquid fueled vehicles have a strong marketing edge because of their greater range and ability to quickly refuel. In other words, people continue to drive conventional cars because they get a lot more bang for their buck. If the price of oil went up enough to make liquid fuel propulsion just as expensive, it might make electric cars more competitive, but it would also eliminate the ability for most to afford a car.

The oil companies are only able to maintain their current markets due to the stability provided by the military subsidy.

Translation: The only reason oil dominates the liquid fuel market is because of peace in the Middle East. Nice hypothesis but needs work.

Regardless of what I wish were true, oil dominates the liquid fuel market quite simply because it is the cheapest source of liquid fuel. It remains dominant after weathering dozens of major price spikes over many decades. OPEC learned a lesson when it looked down and saw all the holes they had shot in their feet with embargoes. Oil isn’t dominant because of government mandates, subsidies, or backroom conspiracy theories. Oil flows from the middle east because those countries want very much to sell it to the rest of the world. We are not forcing anyone to sell their oil. Iran could choose to stop selling their oil any time they want.

Without it [our military presence in the Middle East] all consumers would flee oil as an unreliable source of energy and the oil companies would go bust.

Again, nice hypothesis but when are you going to let us in on this secret source of energy that would replace oil for the same or lower price?

Great article, Russ. As can be expected, it stirred up a lot of off-the-wall comments. Americans generally believe in only two conspiracy therories, and one of them is Big Oil.

Either through the use of private security, or preferably, through diplomacy and profit sharing with the citizens of those countries.

Please name all the oil exporting countries with a government that could be trusted to share profits with their citizens. Canada and…? If you want to complain about a corrupt rich elite, start with the leadership of any OPEC country.

Yes, the western standard of living will have to move closer to the standard that the rest of the world has been accustomed to for 50+ years now, but that is inevitable anyways…

What, is our time up already? After only 50 years? Really?

Hate to nitpick, but how did you calculate that? Why is it inevitable anyways? Hate to get all old fashioned on you, but what happened to the notion that with hard work and fair government we can all be rich?

True enough, but as the ongoing Arab Spring demonstates, the violence is internal, and rightly so. Democracy is long overdue in that part of the world. Should help average citizens a lot.

The climate of the current world economy cannot be maintained indefinitely.

Right again. The biggest threat to the world economy is Wall Street and the banksters. The are also the people maintaining an unreasonable level of wealth. Unfortunately my congressman is so deep up the industry’s @$$, he can’t hear my cries for help.

The point that every one missing is that. by creating military presence in middle east and demonstrating the warfare only affirms our status of being super power. now Presence of military is not just in middle east in south sea of china is also a fact which is rich in gas and oil. will that also be a middle east story? a question that needs an answer.

This military presence has only helped the military and the political class justify budgets increase and spending that on normal day be questioned by the a normal citizens.

Is this the planning to create bases to ensure we have enough presence in future wars. ???????????????……………….. one can only hope that this is explained

Register or log in now to save your comments and get priority moderation!

Russ Finley is an avid amateur naturalist. He is also an aerospace engineer with a Bachelor of Science degree in Mechanical Engineering, an Associate’s in Aviation Technology, airframe and power plant mechanic’s licenses, and pilot’s license, all from Purdue University.